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PRECEDENTIAL

UNITED STATES COURT OF APPEALS


FOR THE THIRD CIRCUIT
_____________
No. 09-1106
_____________
AMERICAN AUTOMOBILE INSURANCE COMPANY
v.
TYRONE MURRAY;
TYRONE MURRAY doing business as
OLNEY BUSINESS CENTER;
ENNIE, INC. doing business as
SAM'S BEER DISTRIBUTOR;
*EDWARD R. EASTER, as Executor of the
Estate of James S. Easter, Jr.;
JEANNETTE I. EASTER, as the Administrator
of the Estate of Jessica Lynne Easter;
STEPHEN L. MELONI
Ennie, Inc. d/b/a Sam's Beer Distributor,
Appellant
(Amended Pursuant to Fed. R. App. P. 43(a)
See Clerk's Order dated 11/17/09)

_____________
No. 09-1248
_____________
AMERICAN AUTOMOBILE INSURANCE COMPANY
v.
TYRONE MURRAY;
TYRONE MURRAY
doing business as
OLNEY BUSINESS CENTER;
ENNIE, INC.
doing business as
SAM'S BEER DISTRIBUTOR;
*EDWARD R. EASTER as Executor of the
Estate of James S. Easter, Jr.;
*JEANNETTE I. EASTER as the Administrator
of the Estate of Jessica Lynne Easter;
STEPHEN L. MELONI
*Jeannette I. Easter, as the Administrator
of the Estate of Jessica Lynne Easter,
Appellant
(Amended pursuant to Fed. R. App. P. 43(a)
See Clerk's Order dated 11/17/09)
_____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania

(Civ. No. 08-1680)


District Judge: Hon. Robert F. Kelly, Sr.
Argued September 23, 2010
Before: MCKEE, Chief Judge, AMBRO, and CHAGARES,
Circuit Judges.
(Filed: September 7, 2011)
Roberta D. Pichini, Esq.
Thomas Martin, Esq. (Argued)
Feldman, Shepherd, Wohlgelernter, Tanner, Weinstock &
Dodig
1845 Walnut St.
25th Floor
Philadelphia, Pennsylvania 19103
Counsel for Appellants Edward R. Easter and Jeanette I.
Easter, Administrators
John J. DLauro, Esq.
DLauro & Dickerson, PC
1528 Walnut St.
Suite 1201
Philadelphia, Pennsylvania 19102
Counsel for Appellant Ennie, Inc., d/b/a Sams Beer
Distributor
Bethany Culp (Argued)
Douglas A. Johns
Hinshaw & Culbertson LLP
333 South Seventh St.
Suite 2000

Minneapolis, Minnesota 55402


Joseph C. Monahan
Braden Borger
Saul Ewing LLP
Centre Square West
1500 Market St.
38th Floor
Philadelphia, Pennsylvania 19102
Counsel for Appellee American Automobile Insurance
Company

Scott E. Miller, Esq.


P. O. Box 562
Ardmore, PA 19003
Counsel for Appellees Tyrone Murray and
Olney Business Center

____________
OPINION
____________

CHAGARES, Circuit Judge.


James S. Easter, Jr.1 and Ennie, Inc. (Ennie) appeal
the District Courts grant of summary judgment to American
1

James S. Easter, Jr. died during the pendency of these


proceedings. Pursuant to Fed. R. App. P. 43, Edward R.

Automobile Insurance Company (AAIC) and denial of their


motion for summary judgment in this declaratory judgment
action. Specifically, AAIC sought and received a declaratory
judgment that its insured, insurance agent Tyrone Murray, is
not covered under its professional liability policy. This case
presents a threshold issue of whether Easter and Ennie have
standing to appeal. We conclude that Ennie has standing to
appeal as a directly injured party of the insured (Murray), but
that Easter does not have standing to appeal because his
interests in this case are too remote and speculative.
On the policy coverage issue, we agree with the
District Court that Murray was not covered under AAICs
policy. Thus, for the reasons that follow, we will affirm the
District Courts judgment.
I.
On March 23, 2006, nineteen-year-old Stephen Meloni
drove his vehicle while intoxicated and struck a pole,
tragically killing his passenger, Jessica Easter. James S.
Easter, Jr. individually and as the Administrator of the Estate
of his daughter Jessica, filed a lawsuit on October 25, 2006,
against Ennie and Steven L. Meloni in the Philadelphia
County Court of Common Pleas (Easter lawsuit). Easter
alleged that Ennie illegally sold alcohol to nineteen-year-old
Gary Grato, who then supplied that alcohol to Meloni causing
him to operate his vehicle negligently and recklessly.

Easter and Jeanette I. Easter have been substituted as parties


in his place.

In response to the lawsuit, Ennie sought a defense and


indemnification from its general liability insurer, Century
Surety Company (Century). Century provided Ennie with a
defense under a reservation of rights and then filed a
declaratory judgment action in the United States District
Court for the Eastern District of Pennsylvania. The District
Court granted summary judgment to Century, declaring that
Century did not owe Ennie a defense or indemnification for
the Easter lawsuit because the insurance policy in effect
during the relevant time period contained a liquor liability
exclusion.
Consequently, on November 27, 2007, Ennie filed a
lawsuit (Ennie lawsuit) against its insurance agent, Tyrone
Murray, alleging that Murray negligently failed to place
liquor liability insurance coverage for Ennie. Through its
principal Thai Poeng, Ennie claimed that it consulted with
Murray on August 23, 2000, with the purpose of obtaining
insurance that would protect the company from any and all
risks arising out of the business of operating a beer
distributorship. Ennie alleged that in 2002, Murray sold it the
Century insurance policy under the pretense that it protected
Ennie from these risks. With this belief, Ennie renewed that
policy annually through Murray. Murray attested that Poeng
renewed the Century policy that was in effect during March
2006 in December 2005, and that this policy did not contain
liquor liability coverage. Hence, Ennie alleged that Murray,
as a licensed commercial insurance agent, breached his duty
to advise it properly of the necessity or availability of liquor
liability coverage. Ennie contends that due to this breach of
duty, it was required to pay the costs of its own defense in the
Easter lawsuit and has been subjected to a potential adverse
judgment arising out of the lawsuit.

In response to the Ennie lawsuit, Murray sought a


defense under his professional liability policy with AAIC.
Murray, as an insurance agent with The Agents & Brokers of
Infinity Property Casualty Corp., enrolled online for his own
insurance coverage through AAIC, which provided a claims
made and reported errors and omissions liability policy. The
first AAIC policy was issued to Murray on January 1, 2006,
providing coverage from January 1, 2006 through January 1,
2007. The policy was properly renewed and Murray
continued to receive coverage from AAIC for the period of
January 1, 2007 through January 1, 2008. Murrays AAIC
policy contains the following relevant language:
NOTICE THIS IS A CLAIMS
MADE
AND
REPORTED
POLICY
THIS
MEANS
THAT
COVERAGE APPLIES ONLY
TO A CLAIM FIRST MADE
AGAINST THE INSURED AND
REPORTED DURING THE
POLICY PERIOD OR, IF
APPLICABLE, DURING THE
EXTENDED
REPORTING
PERIOD.
***
I.

COVERAGE
A. Insuring Agreements

1. Agents Error and


Omissions Liability
We will pay
on
the
Agents
behalf
all
Loss which
such Agent is
legally
obligated to
pay as a
result of a
Claim first
made against
such Agent
or
its
Agency/Age
ncy Staff and
reported to
Us during the
Policy Period
in accordance
with Section
VI.
Conditions
1.2.,
provided that
such Claim is
for
a
Wrongful
Act in the

rendering of
or failure to
render
Professional
Services in
connection
with
a
Covered
Product
if
that
Wrongful
Act occurs
wholly after
the
Retroactive
Date.
***
II.

DEFINITIONS

C. Claim, either in the


singular or plural, means:
1. Any
written
demand
You
receive
for
compensatory
damages
or
services for a
Wrongful
Act
including but not
limited to the

institution
of
arbitration
proceedings
against You, or
2. Any
civil
proceeding
seeking
compensatory
damages against
You
for
a
Wrongful
Act
commenced by
the service of a
complaint
or
similar pleading.
All Claims against
the Insured arising
out of the same
Wrongful Act or
Interrelated
Wrongful Acts [of
one or more of the
Insured] will be
considered
one
Claim. All Claims
arising
out
of
Interrelated
Wrongful Acts will
be considered first
made at the time the
earliest such Claim

10

was made against


the Insured.
***
Q. Wrongful Act, either in
the singular or plural,
means:
1. Any actual or
alleged negligent
act, error or
omission,
or
negligent
misstatement or
misleading
statement by any
Agent or its
Agency/Agency
Staff in the
rendering of or
failure to render
Professional
Services; or
2. Any actual or
alleged negligent
Personal Injury
arising out of
any Agents or
its
Agency/Agency
Staffs rendering

11

of or failure to
render
Professional
Services.
3.
Appendix (App.) 64, 66, 69 (emphases added).
The AAIC policy also contains the following
amendatory endorsement:
Retroactive Date means
the earlier of;
1. The
Retroactive
Date, if any,
shown
on
the Agents
Property/Cas
ualty
Insurance
Agents
Error
and
Omissions
Liability
Policy;
a. Which
immediat
ely
preceded
the first
policy

12

America
n
Automob
ile
Insurance
Company
issued to
the
Agent; or
b. Which
immediat
ely
preceded
the date
the Agent
was first
added to
the
America
n
Automob
ile
Insurance
Company
Policy, if
the
Agent
was
added
after the
inception
date of

13

the first
America
n
Automob
ile
Insurance
Company
Policy,
provided
that there
is
no
lapse in
coverage
between
the
terminati
on date
of
that
other
policy
and the
inception
date of
coverage
for
the
Agent
under the
Automob
ile
Insurance
Company
Policy.

14

If a lapse in
coverage
exists, the
Retroactive
Date
shall
be:
a.
The
inception
date of the
first Policy
Automobile
Insurance
Company
issued to the
Agent; or
b.
The
inception
date
of
coverage
when
the
Agent was
first added to
the American
Automobile
Insurance
Company
Policy, if the
Agent was
added after
the inception
of the first

15

American
Automobile
Insurance
Company
Policy.
2. The
Retroactive
Date for the
Sponsoring
Company
shall be the
same as is
applicable to
the Agent
whose
Wrongful
Act
gave
rise to the
Claim
against the
Sponsoring
Company,
and
the
Retroactive
Date for the
Agency/Age
ncy
Staff
shall be the
same as is
applicable to
the Agent
who
is

16

responsible
for
such
Agency/Age
ncy Staff.
App. 90. Prior to his relationship with AAIC, Murray was
covered under a liability policy from United States Liability
Insurance Company (USLIC) from the period of November
24, 2004 through November 24, 2005. That policy had a
retroactive date of November 24, 2004. Hence, Murray had a
lapse in professional liability coverage from November 25,
2005 through December 31, 2005, immediately proceeding
the January 1, 2006 effective date of the first AAIC policy.
Murray tendered his defense of the Ennie lawsuit to
AAIC, and AAIC provided Murray with a defense under a
reservation of rights to deny coverage and to seek recompense
of all costs expended if it was determined that the AAIC
policy did not provide Murray coverage. On May 8, 2008,
AAIC filed the present declaratory judgment action against
Murray, Ennie, and Easter in the United States District Court
for the Eastern District of Pennsylvania, and subsequently
filed a motion for summary judgment claiming that Murrays
actions that were the basis for the Ennie lawsuit were not
covered under the AAIC policy. Ennie and Easter crossmoved for summary judgment. The main issues in dispute
were the determination of the policys retroactive date, the
date upon which the wrongful acts occurred, and whether the
wrongful acts took place wholly after the retroactive date.
Easter and Ennie argued that AAIC must provide coverage
because the retroactive date for the policy was November 24,
2004, and Murrays wrongful act of failing to insure Ennie for
liquor liability insurance on March 21, 2006, occurred after

17

the retroactive date. AAIC, on the other hand, maintained


that Ennie was not covered under the policy because the
retroactive date of the policy was January 1, 2006, and
Murrays wrongful act of failing to provide liquor liability
insurance occurred in 2002 and continued at each policy
renewal.
On December 15, 2008, the District Court granted
summary judgment to AAIC, finding that Murrays wrongful
act did not occur wholly after the AAIC policys January 1,
2006 retroactive date and, therefore, Murray was not covered
under the policy. In January 2009, Ennie and Easter2 filed
timely notices of appeal from the District Courts judgment.3
II.
We raised the issue of standing sua sponte and as a
threshold matter must determine whether Easter and Ennie
are permitted to challenge the District Courts order. Article
III of the Constitution limits the federal courts to adjudication
of actual [c]ases and [c]ontroversies. U.S. Const. art. III,
2, cl. 1.
Courts enforce the case-or-controversy
requirement through the several justiciability doctrines[,] . . .
[p]erhaps the most important of [which] is standing. Toll
Bros., Inc. v. Twp. of Readington, 555 F.3d 131, 137 (3d Cir.
2

Murray failed to file a timely notice of appeal of the District


Courts grant of summary judgment and therefore has waived
his right to appeal.
3

The District Court had diversity jurisdiction over this matter


pursuant to 28 U.S.C. 1332(a)(1). We have jurisdiction
under 28 U.S.C. 1291.

18

2009) (quotation marks omitted). Standing circumscribes the


federal judicial power by requiring a litigant to show that it is
entitled to have the court decide the merits of its case. Allen
v. Wright, 468 U.S. 737, 750-51 (1984).
The three
constitutional elements of standing are: (1) an injury in
fact, that is, a concrete and particularized invasion of a
legally protected interest that is actual or imminent, not
conjectural or hypothetical; (2) causation, the showing of a
fairly traceable connection between the alleged injury in fact
and the alleged conduct of the defendant; and (3)
redressability, that is, it must be likely, as opposed to
merely speculative, that the injury will be redressed by a
favorable decision. Lujan v. Defenders of Wildlife, 504
U.S. 555, 560-61 (1992).
The controlling case in this Court on whether injured
parties have standing in a declaratory judgment action in the
insurance coverage context is Federal Kemper Insurance Co.
v. Rauscher, 807 F.2d 345 (3d Cir. 1986).4 In that case, the
4

We afforded the parties the opportunity to address the


standing issue, and in our correspondence to the parties we
cited both Rauscher and Liberty Mutual Insurance Co. v.
Treesdale, 419 F.3d 216 (3d Cir. 2005), as potentially
controlling authority. The parties inevitably agreed that
Rauscher (and not Treesdale) controls. Our Treesdale
opinion is inapplicable because, unlike Rauscher and the case
at hand, it dealt solely with the standard for intervention
under Fed. R. Civ. P. 24, and altogether failed to discuss or
address the principle of standing. Further, we note that
neither this Court nor the Supreme Court has determined
whether a potential intervenor must even have Article III
standing. See Diamond v. Charles, 476 U.S. 54, 68-69 (1986)

19

insured driver, Rauscher, and his two passengers were


involved in an automobile accident, leaving one passenger
permanently disabled. Id. at 347. The insurance company,
Kemper, filed a complaint for a declaratory judgment against
Rauscher and his passengers, asking the District Court to
construe Rauschers insurance policy as not covering the
accident. Id. at 348. Rauscher failed to answer, and the
(We need not decide today whether a party seeking to
intervene before a district court must satisfy not only the
requirements of Rule 24(a)(2), but also the requirements of
Art. III.). Those Courts of Appeals that have addressed this
issue have been split. Compare Ruiz v. Estelle, 161 F.3d 814,
830 (5th Cir. 1998) (holding that Article III standing is not a
prerequisite to intervention), Associated Builders &
Contractors v. Perry, 16 F.3d 688, 690 (6th Cir. 1994) (same),
Yniguez v. Arizona, 939 F.2d 727, 731 (9th Cir. 1991)
(same), Chiles v. Thornburgh, 865 F.2d 1197, 1213 (11th Cir.
1989) (same), and United States Postal Serv. v. Brennan, 579
F.2d 188, 190 (2d Cir. 1978) (same), with Mausolf v. Babbitt,
85 F.3d 1295, 1300 (8th Cir. 1996) (holding that Article III
standing is necessary for intervention), and United States v.
36.96 Acres of Land, 754 F.2d 855, 859 (7th Cir. 1985)
(concluding that intervention under Rule 24 requires interest
greater than that of standing). Because it did not explicitly
mention standing or even Rauscher we will not assume
that the Court in Treesdale contemplated standing in relation
to its analysis of intervention and we need not today resolve
the issue of whether a party seeking to intervene must have
Article III standing. Because Treesdale is not on point and
Rauscher directly addresses standing in a similar factual
setting, Rauscher will guide our analysis.

20

District Court granted a default judgment to Kemper against


Rauscher and the passengers, holding that the passengers
rights were merely derivative of Rauschers rights. Id. We
reversed, holding that a case or controversy existed
between the insurance company and the injured passengers
and, therefore, the passengers had standing to defend the
declaratory judgment despite Rauschers absence. Id. at 35354.
In reaching this conclusion, we noted that the critical
determination for standing to sue in this scenario was
whether the rights of an injured party within the procedural
context of a declaratory judgment action are truly derivative
of the rights of the co-defendant insured. Id. at 351. If the
rights of the injured party are derivative and not independent,
then there would be no case or controversy, as there would
be no real dispute between the injured party and the
insurance company. Id. We recognized that a case or
controversy must exist between the insurance company and
the injured third party under such circumstances, since the
insurance company brought the declaratory judgment action
against the injured third party in the hope of attaining a
binding judgment against both the insured and the injured
party. Id. at 354. Taking a realistic approach, we
concluded that the injured party has an independent right to
present its case upon the ultimate issues, apart from that of
the insured, because in many of the liability insurance
cases, the most real dispute is between the injured third party
and the insurance company, not between the injured and
oftentimes impecunious insured. Id. (quoting 6A James
Wm. Moore et al., Moores Federal Practice 57.19).

21

Applying the principles set forth in Rauscher, we


conclude that Ennie has standing to appeal the District
Courts order in this declaratory judgment action. Like the
passengers in Rauscher, Ennie is the directly injured party
and its interests in the lawsuit are, therefore, independent of
the insured (Murray). Ennie has a particularized interest in
the lawsuit because a determination of Murrays coverage
would dictate its ability to receive the full benefit of the Ennie
lawsuit.
The holding in Rauscher, however, does not extend to
Easter, as he is an injured party twice-removed. Unlike
Ennie, Easters interests in this lawsuit are purely derivative
of the injured third partys interests. Essentially, the only
interest Easter has in the lawsuit is the potential pecuniary
gain that will flow to him through Ennie, since he has failed
to make any claims directly against the insured. For Easter to
recover any of the insurance proceeds, he would have to
prevail in his lawsuit against Ennie, which would have to
prevail in its lawsuit against Murray, who would have to
prevail on this appeal of the District Courts judgment in
favor of AAIC. Counsel for Easter conceded at oral argument
that standing here would be based on a two-step process,
and it is this two-step process that makes Easters interest
merely speculative. Notably, Easter has failed to identify a
court that has permitted standing for a party with derivative
claims of the injured third party in a declaratory judgment
action between an insured and insurer. We conclude that
Easter does not have standing to pursue this appeal, as his
interests in this declaratory judgment action are too remote
and speculative, absent any contractual assignment of rights

22

under the insurance policy.5


standing to pursue this appeal.

Therefore, only Ennie has

Easter also argues that his inclusion by AAIC in the lawsuit


is determinative of his standing to appeal. We disagree. In
Rauscher, we reasoned that the fact that Kemper brought a
declaratory judgment action against the injured parties in
hopes of attaining a binding judgment against both its insured
and the injured parties was persuasive evidence that an
actual controversy existed between them, and, therefore,
that the injured parties had standing to defend the action. 807
F.2d at 353-54; see also Truck Ins. Exch. v. Ashland Oil, Inc.,
951 F.2d 787, 789 (7th Cir. 1992) (holding that an insurer
who brought a declaratory judgment action and out of an
abundance of caution named the injured party as an
additional defendant (1) must have thought the injured party
had some potential interest in the insurance policy and (2)
had tacitly conceded [the injured partys] standing to appeal
by not contesting the appeal on the ground of lack of
standing); Dairyland Ins. Co. v. Makover, 654 F.2d 1120,
1123 (5th Cir. 1981) (holding that the injured party had
standing to appeal the declaratory judgment in favor of the
insurance company and noting that it was decisive to the
holding that Dairyland named the injured appellants in its
declaratory judgment action); Auto. Underwriters Corp. v.
Graves, 489 F.2d 625, 627-28 (8th Cir. 1973) (holding that
[a]n injured person having a possible claim against an
insurer who has been made a party defendant to an action for
declaratory judgment possesses the requisite interest to be
heard on appeal).
Here, AAIC named Easter and Ennie in its declaratory
judgment action and failed to contest the standing of either to

23

III.
appeal. See AAIC Br. 14 (noting merely that neither Easter
nor Ennie has a claim against AAIC and proceeding to
address the merits). On the surface, this weighs in favor of
the argument that Easter has standing. However, Easters
interests in any possible insurance proceeds are much more
speculative than the injured parties in the cases cited above.
While AAIC named Easter in its declaratory judgment action,
we do not believe that is enough to overcome what is
otherwise a highly speculative, mere economic interest in
insurance proceeds, conditioned upon success in two pending
lawsuits (unlike the interests of the injured parties in both
Rauscher and Dairyland whose interests were contingent only
on success in one lawsuit).
Moreover, we recognize that parties are not permitted
to waive constitutional standing. United States v. Hays, 515
U.S. 737, 742 (1995) (The question of standing is not subject
to waiver . . . .); Natl Org. for Women, Inc. v. Scheidler,
510 U.S. 249, 255 (1994) (Standing represents a
jurisdictional requirement which remains open to review at all
stages of the litigation.); Pressman-Gutman Co. v. First
Union Natl Bank, 459 F.3d 383, 402 n.20 (3d Cir. 2006)
(stating that Article III standing, of course, is not subject to
waiver).
Hence, a plaintiffs tacit concession of a
defendants standing by inclusion in the lawsuit cannot be
dispositive. Each party must show that it has satisfied the
elements of standing and, specifically in this case, must have
demonstrated that it has a concrete and imminent interest in
the policy at issue to appeal. See Diamond v. Charles, 476
U.S. 54, 63 (1986) ([S]tatus as a party does not equate with
status as an appellant.).

24

We will now address the interpretation of the policy


between AAIC and Murray to determine if AAIC is required
to provide Murray with insurance coverage for the Ennie
lawsuit. Our review of the District Courts grant of summary
judgment is plenary, and we apply the same legal standard as
it should have. Vitalo v. Cabot Corp., 399 F.3d 536, 542 (3d
Cir. 2005). A party is entitled to summary judgment if the
movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a
matter of law. Fed. R. Civ. P. 56(a). In conducting our
analysis, we must view the record in the light most favorable
to Ennie, and must draw all reasonable inferences in its favor.
See Vitalo, 399 F.3d at 542. To defeat summary judgment,
however, Ennie must show[] that the materials cited do not
establish the absence . . . of a genuine dispute. Fed. R. Civ.
P. 56(c)(1).
It is the function of the court to interpret insurance
contracts under Pennsylvania law. Melrose Hotel Co. v. St.
Paul Fire & Marine Ins. Co., 432 F. Supp. 2d 488, 495 (E.D.
Pa. 2006) (citing 401 Fourth St., Inc. v. Investors Ins. Grp.,
879 A.2d 166, 171 (Pa. 2005)).6 The courts primary
consideration in performing this function is to ascertain the
intent of the parties as manifested by the language of the
written instrument. Home Ins. Co. v. Law Offices of
Jonathan DeYoung, 32 F. Supp. 2d 219, 223 (E.D. Pa. 1998)
(quoting Standard Venetian Blind Co. v. Am. Empire Ins.
Co., 469 A.2d 563, 566 (Pa. 1983)). The policy must be read
6

The parties agree that Pennsylvania law applies to this


appeal, as do we.

25

as a whole and construed in accordance with the plain


meaning of terms. C.H. Heist Caribe Corp. v. Am. Home
Assurance Co., 640 F.2d 479, 481 (3d Cir. 1981). Words of
common usage must be construed in their natural, plain, and
ordinary sense, with a court free to consult a dictionary to
inform its understanding of terms. Melrose Hotel Co., 423
F. Supp. 2d at 495 (citing Madison Constr. Co. v. Harleysville
Mut. Ins. Co., 735 A.2d 100, 108 (Pa. 1999)).
Where the language of an insurance policy is clear and
unambiguous, a court must enforce that language. Med.
Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999).
Furthermore, if possible, a court should interpret the policy
so as to avoid ambiguities and give effect to all of its
provisions. Id. (quoting Little v. MGIC Indem. Corp., 836
F.2d 789, 793 (3d Cir. 1987)). However, if the contracts
terms are reasonably susceptible to more than one
interpretation, then they must be regarded as ambiguous. Id.;
C.H. Heist Caribe Corp., 640 F.2d at 481. Ambiguous
provisions in an insurance policy must be construed against
the insurer and in favor of the insured; any reasonable
interpretation offered by the insured, therefore, must
control. Med. Protective Co., 198 F.3d at 104 (quoting
McMillan v. State Mut. Life Assurance Co., 922 F.2d 1073,
1075 (3d Cir. 1990)). Pennsylvania courts have applied this
rule liberally. Id.
A.
In determining AAICs responsibility to provide
insurance coverage to Murray, we must first address the
retroactive date of the AAIC policy and then decide whether
Murrays wrongful act occurred wholly after that

26

retroactive date.
An interpretation of the amendatory
endorsement, specifically the term immediately preceded,
will determine the retroactive date. Ennie argues that the
retroactive date must be determined by considering only
paragraph 1.a of the amendatory endorsement, and, as such,
the retroactive date must be the retroactive date which
immediately preceded the first policy American Automobile
Insurance Company issued to the Agent. App. 90. Ennie
contends that the policy which immediately preceded the
first AAIC policy beginning January 1, 2006 was the policy
issued by USLIC covering the period of November 24, 2004
through November 24, 2005 because that policy was the last
in time. Hence, Ennie maintains that the retroactive date of
that policy, November 24, 2004, also governs the AAIC
policy.
In the alternative, Ennie contends that if
immediately preceded is open to two different
interpretations, then we must construe the term against the
insurer and conclude that immediately preceded means
next in line.
Ennie also dismisses paragraph 1.b of the amendatory
endorsement, maintaining that its language and lapse
provisions are not applicable to Murray. Paragraph 1.b
applies only if the agent was added after the inception date
of the first American Automobile Insurance Company
policy. App. 90. Ennie argues that Murray was an insured
under the first AAIC policy from its inception. Importantly,
Ennie notes that paragraph 1.b is the only section referencing
lapses in coverage, and it therefore contends that such lapses
are only relevant where there has been a lapse between two
AAIC polices. Ennie thus argues that paragraph 1.b is
inapplicable because Murray was insured under the first

27

AAIC policy since inception, and there were no lapses in


AAIC coverage because the two policies were continuous.
AAIC argues that paragraph 1.a of the amendatory
endorsement supports a retroactive date of January 1, 2006.
Under paragraph 1.a, AAIC proposes that the definition of
immediately is without interval of time, without delay,
straightaway, or without any delay or lapse of time. AAIC
Br. 19-20 (quoting Blacks Law Dictionary 750 (6th ed.
1990)). As such, AAIC contends that there was no policy that
immediately preceded the first AAIC policy since there was
a delay and lapse of time between Murrays coverage with
USLIC and AAIC. According to paragraph 1.a, therefore,
Murrays retroactive date would be the first effective date of
coverage for his AAIC policy, January 1, 2006. AAIC
contends that this is the only logical interpretation that could
have been contemplated by the parties, as the alternative
would provide Murray coverage despite large gaps in time.
For example, taking Ennies argument to its extreme, AAIC
notes that:
if Murray were uninsured for a
long period of time and, for
instance, his most recent previous
policy was in effect from
November 24, 1975 to November
24, 1976, and he had a thirty year
gap in coverage . . . he would
have a November 1975 retroactive
date under the AAIC policy.
AAIC Br. 20.

28

The District Court, in determining the retroactive date,


aptly pointed out that AAICs policy was poorly drafted,
specifically citing two drafting errors in the amendatory
endorsement.
Importantly, the District Court correctly
assumed that the introductory language of the amendatory
endorsement The Retroactive Date means the earlier of;
mistakenly utilized a semicolon instead of a colon. App. 20.
After assuming a colon was intended in order to allow the
amendatory endorsement to make sense, the District Court
noted that examining the language of paragraph 1.a in
isolation would reasonably support Ennies policy
interpretation of the term immediately meaning next in
line. Id. However, because Pennsylvania law dictates that
the endorsement be read as a whole, the District Court
concluded that the indentation of the lapse language in
paragraph 1.b was also erroneous because restricting the lapse
provision to paragraph 1.b would mean it would never apply
because the analysis would end after paragraph 1.a, which
under [Ennies] interpretation . . . ignores any gap in coverage
without regard to the extent of its duration. App. 21. The
District Court noted that not applying the lapse language to
paragraph 1.a renders it superfluous and creates absurd
results, and then determined that the only reasonable
interpretation of the endorsement as a whole is to give effect
to the lapse provision in all instances of lapse in coverage.
Id. This interpretation dictates, in light of Murrays lapse in
coverage, a retroactive date of January 1, 2006, the inception
date of the AAIC policy.
We agree with the thorough and thoughtful analysis by
the District Court regarding the retroactive date.
Pennsylvania law dictates that we read the policy language
regarding the retroactive date as a whole in the context of the

29

entire amendment and we must attempt to give effect to all of


its provisions. In doing this, it is clear that the lapse
provisions must be applicable to both paragraphs of the
endorsement in order to give logical meaning to paragraph 1.a
and the lapse provisions themselves. This interpretation also
protects the purpose of claims made policies and retroactive
dates, which are meant to limit an insurers coverage, and
avoids the absurd result of giving effect to dates decades in
the past.
Applying the lapse provision to paragraph 1.a, we are
not persuaded that the term immediately preceded is an
ambiguous term. While it is true that this Court is bound to
construe any ambiguities in insurance contracts in favor of the
insured, reading immediately preceded in light of the lapse
provision removes any ambiguity about the term, as the date
of retroactivity in the policy that immediately preceded the
AAIC policy is only relevant if the insured has maintained
continuous insurance coverage. Since Murray allowed his
coverage to lapse, the retroactive date is the inception date of
the first AAIC policy issued January 1, 2006.7 We
7

We note that AAIC also maintains that paragraph 1.a is


inapplicable to Murray and, therefore, that paragraph 1.b
governs this situation. Paragraph 1.a provides that the
retroactive date is the date shown on the Agents policy
[w]hich immediately preceded the first policy [AAIC] issued
to Agent . . . . App. 90 (emphasis added). As AAIC points
out, it never issued a policy to Murray. Rather, it issued the
relevant policy to the The Agents of Infinity Property
Casualty Corp. Murray was first added to the AAIC policy
on January 1, 2006, when he signed a contract with The
Agents of Infinity, as contemplated by paragraph 1.b. See

30

therefore agree with the District Courts interpretation of the


retroactive date and conclude that the policy language is not
ambiguous.
B.
For coverage under the AAIC policy, both the claim
and wrongful act by Murray must have occurred wholly
after the retroactive date of January 1, 2006. Since it is not
disputed that the claim occurred after the retroactive date, the
determination of coverage will depend solely on the
characterization and timing of the wrongful act. The policy
defines wrongful act as [a]ny actual or alleged negligent
act, error or omission, or negligent misstatement or
misleading statement . . . . App. 69. Ennie maintains that
Murrays only wrongful act was failing to advise and provide
liquor liability insurance to Ennie on the specific date of the
App. 90 (providing that the retroactive date is the date shown
on the Agents policy [w]hich immediately preceded the
date the Agent was first added to the [AAIC] Policy, if the
Agent was added after the inception date of the first [AAIC]
Policy, provided that there is no lapse in coverage . . .)
(emphasis added). Thus, AAIC argues, we need not reconcile
paragraphs 1.a and 1.b, as paragraph 1.a is inapplicable and
paragraph 1.b clearly indicates a retroactive date of January 1,
2006.
We need not address this argument, however, because
as we explain above, we are persuaded that paragraph 1.a
supports a determination that the retroactive date is January 1,
2006.

31

accident, March 21, 2006. Ennie argues that any negligence


attributable to Murray before that time did not result in any
harm and, therefore, did not give rise to any claims for which
coverage is sought under the AAIC policy. Ennie relies on
case law regarding negligence causes of action and
occurrence insurance policies, which requires, as in all
negligence claims, proof of damages.8 In the alternative,
Ennie also argues that Murray met with a representative of
Ennie to discuss its insurance coverage after January 1, 2006.
Ennie contends that Murrays wrongful act occurred during
this meeting where Murray failed to advise him of his need
for liquor liability coverage.
AAIC maintains that Murrays wrongful act occurred
in the fall of 2002 when he failed to provide liquor liability
coverage and continued at each policy renewal through the
last renewal in December 2005. AAIC concedes that Murray
met with Ennie regarding its policy in 2006, but argues that
this meeting was the continuation of Murrays wrongful act
that had already occurred.
Like the District Court, we are not persuaded by
Ennies argument that the wrongful act occurred on the
8

A claims made policy protects the policy holder against


claims made during the life of a policy. In comparison, an
occurrence policy protects a policy holder against occurrences
that happen during the policy period and for which claims
may arise later. See Twp. of Ctr. v. First Mercury Syndicate,
117 F.3d 115, 118 (3d Cir. 1997). Here, Ennie urges the
Court to equate the definition of an occurrence under
occurrence polices to that of a wrongful act or negligent
act under AAICs policy.

32

specific date of the accident. Ennies reliance on case law


regarding insurance coverage disputes that result in lawsuits
of negligence is misplaced. Here, we are not reviewing a
cause of action for negligence, but are tasked with
interpreting the policys language. The policy defines
wrongful act as [a]ny actual or alleged negligent act, error
or omission, or negligent misstatement or misleading
statement. App. 69. As negligent act is not defined in the
policy, we are instructed to give the term its natural meaning:
an act that creates an unreasonable risk of harm to another.
Blacks Law Dictionary 26 (8th ed. 2004). Hence, the plain
meaning of negligent act does not necessitate proof of
damages, but only a showing that Murray has acted so as to
expose Ennie to an unreasonable risk of harm.
Ennies reliance on case law regarding occurrence
insurance policies is similarly misplaced. There is no need to
borrow from the definition of occurrence under occurrence
policies when the plain meaning of the term negligent act
adequately defines wrongful act. Moreover, as the District
Court noted, the definition for an occurrence suggests that
the negligent act and resulting damage could occur at
different times and that a negligent act is not dependent on
when the injury occurs. See DAuria v. Zurich Ins. Co., 507
A.2d 857, 861 (Pa. Super. Ct. 1986) (noting that an
occurrence happens when the injurious effects of the
negligent act first manifest themselves in a way that would
put a reasonable person on notice of injury). Therefore, we
reject Ennies interpretation of the term wrongful act.
We conclude that the wrongful act occurred when
Murray failed to exercise the proper degree of care in placing
insurance for Ennie and exposed it to an unreasonable risk of

33

harm. The record indicates that Ennie, through Poeng, first


contacted Murray for insurance in 2000, and that Murray
began placing coverage for Ennie in the fall of 2002. By
2005, Ennie was operating as a beer distributor when Murray
renewed his policy that was in effect on the date of the
accident, March 24, 2006. From 2002 until the date of the
accident, Murray never alleged that he attempted or
recommended to place liquor liability coverage for Ennie.
Considering these facts, Murray created an unreasonable risk
of harm to Ennie at the earliest in the fall of 2002 and at the
latest during the last policy renewal in December 2005. Any
meeting between Poeng and Murray that occurred in 2006
regarding insurance coverage was a continuation of Murrays
wrongful act of failing to provide the proper coverage. As
such, Murrays wrongful acts did not occur wholly after the
retroactive date of January 1, 2006. Therefore, we hold that
Murray is not covered under the AAIC policy, and that the
District Court did not err in granting summary judgment to
AAIC.
IV.
For the foregoing reasons, we will affirm the judgment
of the District Court.

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